Why Telcos Need Jugaad To Address The Rural Market

It is a moment of reckoning for the Indian telcos. The urban market is saturated and the Average Revenue Per User (ARPU) has hit rock bottom, forcing the telcos to focus on newer markets. How do they meet the requirements of the rural market without compromising on the profitability?

The rural teledensity in India stands at just 56.9% compared to more than 100% in the urban markets. The next wave of subscribers is going to come from the rural segment. A few recent developments, including reduction in the price of smartphones and tariffs have made the wireless connectivity easily accessible to the rural population. Further, the reach of television media means that the rural population is no longer unaware of the advantages of connectivity and aspires to leverage connectivity for overall growth.

A number of government-led initiatives like Digital India, Smart City Mission have put the spotlight on expanding the network to the rural market. The upcoming Telecom Policy also aims to increase the rural teledensity to 100%. All these factors suggest that this might be the perfect time for the telcos to expand in the tier III cities and villages.

However, addressing the rural market is not without challenges. The telcos have largely stayed away from the rural market because of the high cost of deploying and maintaining the networks. Uneven population distribution further increases the cost of setting up and managing the network in the rural areas.

Low paying capability of the rural population means that the return on investment is spread over a longer period of time. ARPU in metro cities and Circle-A category cities in India in September 2016 was INR165 and INR134 while in Circle C cities was just INR98. Financial reasons then ensure that the service providers are reluctant to expand in the rural areas.

Unfortunately, the telcos usually try to replicate the successful urban network strategy in the rural areas. The capital-intensive model, which works in the urban market is unviable in the rural segment because of low ARPU.

The set of rules that worked wonders in the urban market are unlikely to succeed in the rural segment. The unique requirements of the rural population demand a fundamentally different approach.

So, how can telcos address the rural market?

To ensure the profitability of setting up network in the rural markets, it is important to go for the right business model. The need of the hour is a cost-effective approach. A network that is quick to deploy and doesn’t require high maintenance will serve the interests of the service providers.

At the same, it is important to remember that rural subscribers demand the same level of quality of services as their urban counterparts. Rural customers are as discerning as urban subscribers and expect the best-in-class services from communications providers.

Service providers would do well to explore out-of-the-box solutions to address the different requirements of the Indian rural network. Cell sites that run on solar power can be an answer to limited availability of power grid in the rural India. Similarly, low maintenance base stations that can be managed by the community will help in bringing down the operational expenditure. Technology innovations can play a crucial role in empowering telcos to provide connectivity to the rural market.

In keeping with the low paying capability of the rural segment, the service providers can also utilize 2G technology till the time the subscribers are ready to move to the 4G network. A 2G solution, which leverages the advantages offered by Network Functions Virtualization (NFV) and Software Defined Networking (SDN) will enable telcos to provide quality services to the rural subscribers cost effectively. Besides, since the virtualization approach tries to do away with heavy hardware it will also lead to faster rollout of newer services in the rural areas.

Contrary to popular perception, 2G technology continues to be relevant in the developing countries and can play a crucial role in bridging the digital divide. A modern 2G solution will go a long way in helping telcos to connect the unconnected while keeping their capital expenditure in check. What is of special significance is that it also helps in smooth migration to 4G when the market is ready, without much additional investment.

Connectivity brings in a host of opportunities and benefits for everybody and the service providers can use innovative and cost-effective technology solutions to meet the connectivity demands of people from all walks of life. A 2G solution based on the concept of virtualization, which allows the service providers to transition to 4G when the market base is ready, will help the telcos to meet the challenges of deploying network in the rural market.